Bond holders for Alpha Natural Resources and Arch Coal Inc. had already learned the hard way that carbon risk can transform a risky, but high yield transaction into an illiquid loss of value. But there are signal that markets are overly willing to distress coal burning assets. The problem with this disorderly de-capitalization of coal is that in the physical world, electricity generated by coal is still needed in the immediate term.

Earlier this autumn, Citibank published an essay entitled “Time to Price Carbon: Obama’s Clean Power Plan Alters Energy Landscape” in which the firm’s commodity analysts argued that financial markets “should start factoring in ‘shadow carbon prices’ into investment decisions starting today. I would argue that the market already has done so, and in fact may be overcorrecting on time scale as investors retreat en masse from assets that could potentially get stranded in the future.

In the early days of the Clean Power Plan, the marginal cost of abatement will likely be determined by the costs of switching from coal generation to natural gas. Citibank says in the near term, assuming a $3.50 MMBtu price at Henry Hub which could prove high, the shadow price for carbon in the United States would be roughly $14 a ton, in line with California’s cap and trade prices which have fluctuated between $11 a ton to $23 a ton. The high in the European Union’s cap and trade market was 30 Euros a ton.

The tragedy of coal’s illiquid bonds is a warning for the rest of the energy world. Giving long winded speeches about the long time horizon for an energy transition will not eliminate the risk to the oil business from a disorderly decapitalization over time. Even oil producing countries may some day find it harder to identify takers for national debt. While it is true that there are easy substitutes for generating electricity from coal and not for oil use in transportation, the transition time away from the coal industry is still years away. But the last year or two are demonstrating clearly that markets will begin discounting a future loss of value rapidly.

As the industry reassesses its lobbying strategies ahead of the Climate meeting in Paris later this year, it might want to rethink its approach. Denial and lawsuits against regulation have not served the coal industry and their shareholders well. Given that a shadow price for carbon is already upon us, a new approach is clearly needed.